TMI Blog2016 (12) TMI 551X X X X Extracts X X X X X X X X Extracts X X X X ..... its contentions including objections to the DVO valuation report which shall be evaluated on merits to compute capital gains payable by the assessee in accordance with provisions and scheme of the Act. Long term capital gains earned on sale of properties - tax rate applicable as per the assessee is concessional tax rate as applicable to long term capital gains@20% as provided u/s 112 - Held that:- We are of considered opinion that Section 50 of the Act is a provision with deeming fiction whereby for the purposes of computing capital gains in the case of depreciable assets , the gains arising from the transfer of the said assets has to be treated as capital gains arising from transfer of short term capital assets u/s 50 of the Act, but for the purpose of applicability of tax rate it has to be treated as long term capital gain if held for more than three years and brought to tax at rate@20% as stipulated u/s 112 of the Act. This proposition is supported by the order of co-ordinate benches of the Tribunal in the case of Smita Conductors Limited v. DCIT [2013 (9) TMI 1056 - ITAT MUMBAI ] Transfer pricing adjustment - addition with respect to Royalty Payment made u/s 92CA - Held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the Associated Enterprises(AE s) only. The Appellant had requested its AE s to provide such details during the course of the assessment proceedings with the TPO on specific request. To the extent the Appellant could provide these details , the same were accepted to be at arm s length by the TPO. iii. The TPO has , in his order u/s 92CA(3) determined the arm s length price in respect o DCT Central Charges as NIL against the book value of ₹ 1,40,05,712 on the ground that the Appellant did not submit relevant document and details for calculation of the said expenses. iv. During the year ended March 31, 2005 , significant IT costs were incurred related to a Common Operating Environment System ( COE3 ) deployed by the BP group worldwide. COE3 offers significant benefits to the participating entities and results in efficient functioning of the business. These costs were allocated to group companies participating in the system, on the basis of number COE3 enabled computers installed at each entity and/or an appropriate allocation key. v. The Appellant submitted various details on COE3 to the TPO and the same were summarized below: Explanation of the services receive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears 2002-03, 2003-04, 2004-05, 2005-06 and 2006-07 wherein the matter was remanded back to the file of the AO/TPO for deciding the matter afresh wherein the observations of the Tribunal in ITA no. 8359/Mum/2010 for assessment year 2005-06 vide orders dated 14-11-2014 are as under:- 6.In the appeal filed by the Revenue, the Revenue is aggrieved for deleting the disallowance in relation to IT cost. 6.1 The CIT(A) deleted the disallowance partly after having the following observation :- 3.10 I have perused the TPO's order and the written submission. The total amount relating to cost sharing was ₹ 2,24,25,081 out of which the Appellant was able to submit details of basis of allocation amounting to ₹ 2,21,34,295. On the basis of the said details the cost allocations ere considered to be at arm's length. With regards to the disallowance of ₹ 290,786, the Appellant had requested to determine the arms length price in accordance with the provisions of section 92C(1) and 92C(2) of the Act. Since, the genuineness of the payments is not in doubt and the receipt of services and benefits derived by Castrol India has itself not been challenged by the TPO/AO, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. The learned counsel for the assessee in this regard has submitted that in the subsequent years i.e. assessment years 2005-06 and 2006-07, a similar issue was in i'olved in the assessee 's case and the learned CIT(Appeals) has allowed the expenses allocated to the extent of 50%. We have perused the orders of the learned CIT(Appeals) passed in the assessee 's case for assessment years 2005- 06 and 2006-07. It is noted that no convincing or sound basis has been given by the learned CIT(Appeals) therein in support of the 50% cost allocation accepted by him and such estimate has been made purely on adhoc basis. In our opinion, the exercise of ascertaining ALPs has to he done by the TPO keeping in view the well laid down scheme in the relevant provisions of the Act and addition, if any, on account of TP adjustment, has to be made onlyafter doing such exercise. We, therefore, restore this issue to the file of the AO/TPO with a direction to do such exercise and make addition, if an on this issue after completing such exercise in accordance with law . Ground N6.2 of the assessee 's appeal is accordingly treated as allowed for statistical purposes. 16. As th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reed that a similar issue has already been decided in assessee's own case for A.Y. 2001-02 wherein the same was restored by the Tribunal to the file of AO vide order dated 30th July 2009 passed in ITA No. 2363/Mum/2005 with a direction to make the adjustment on account of excise duty also to the value of opening stock as well as sales and purchase in accordance with section 145A. Respectfully following the said order of the Tribunal, we restore this issue to the file of AO for deciding the same afresh as per same directions as given by the Tribunal in A.Y. 2001-02. Ground no. 8 of the assessee's appeal is accordingly treated as allowed for statistical purposes. 13.2We have considered rival contentions and gone through the order of the Tribunal in assessee s own case for A.Y.2003-04 as reproduced above. As the facts and circumstances of the case during the year under consideration are same, we restore this issue back to the file of AO with regard to claim of CENVAT u/s.145A for deciding afresh in terms of direction given by the Tribunal in aforementioned order. We direct accordingly. 4.2 We have considered rival contentions and gone through the order of the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been dealt by the AO at para 14 and by CIT(A) at para 16. 4.1 Learned AR placed on record order of Tribunal in assessee s own case for the A.Y.2003-04, wherein the issue has been decided by the Tribunal partly against the assessee. The precise observations of the Tribunal at page 20 para 35 are as under :- 35. As regard the issue raised in ground no. 13 of the assessee's appeal relating to disallowance of depreciation on the assets of Silvasa Unit, the ld. Representatives of both the sides have agreed that this issue is squarely covered against the assessee and in favour of the Revenue by the order of the Tribunal dated 13th April 2009 (Supra) passed in assessee's own case for A.Y. 2001-02, wherein the similar issue was decided against the assessee by following the decision of the Hon'ble Bombay High Court in the case of Scope Industries Pvt. Ltd. 289 ITR 195 as well as that the Tribunal in assessee's own case for A.Y. 2000- 01. Respectfully following these judicial pronouncement we decide this issue against the assessee and dismissed ground no. 13 of its appeal. 4.2 We have considered rival contentions. The issue with regard to claim of depreciation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be set aside to the file of authorities below for de-novo determination of the issue on merits after considering the valuation report of the DVO. We have considered the rival contentions and perused the material on record. In our considered view and in the interest of justice, this issue of determination of full value of consideration for computation of capital gains in respect of properties sold need to be set aside and restored to the file of the AO for fresh adjudication of the issue on merits after consideration of the valuation report of the DVO and also objections of the assessee . The AO shall giver proper and adequate opportunity of being heard to the assessee in accordance with principles of natural justice and the assessee shall be allowed to file all necessary evidences and material in support of its contentions including objections to the DVO valuation report which shall be evaluated on merits to compute capital gains payable by the assessee in accordance with provisions and scheme of the Act.We order accordingly. The assessee is also aggrieved by treatment of long term capital gains earned on sale of properties which were held for a period of more than three yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /2012 for the assessment year 2007-08 8. The first grievance of the Revenue is with respect to the learned CIT(A) allowing 50% of IT charges i.e. COE3 expenses being ₹ 70,02,606/- out of total disallowance of COE3 expenses to the tune of ₹ 1,40,05,712/- by the AO. This issue has already been adjudicated by us in the Assessee s appeal in ITA no. 195/Mum/2012 for assessment year 2007-08 in preceding para number 3 of this order. Our aforesaid decision shall apply mutatis mutandis to this issue in the Revenue s appeal in ITA no. 13/Mum/ 2012.We order accordingly. 9. The second grievance of the Revenue is with respect to the decision of learned CIT(A) in deleting the disallowance made by the AO with respect to Royalty Payment amounting to ₹ 77,60,843/- made u/s 92CA of the Act , by the Transfer Pricing Officer/Assessing Officer. The learned CIT(A) held as under : 3.2.3 I have considered the facts of the case, written submission and oral arguments of the appellant as against the observations/findings of the TPO/AO in their orders u/s. 92CA (3) /143(3) of the Act. The submission and contention of the appellant are being discussed and decided as under:- i. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the delegated authority under the Foreign Exchange Management Act,1999 to administer compliance with exchange control laws in India. v. Viewed in the above background, the TPO s interpretation of the SIA approval was erroneous. The TPO has erred in disallowing royalty of ₹ 77,60,843 . Accordingly, the Appellant s appeal is allowed and the adjustment made by the TPO is directed to be deleted. Both the parties agree that the issue is covered by the Tribunal s decision in the earlier years and the facts are identical. The learned DR however submitted that the assessee did not furnish the comparable data in respect of uncontrolled transactions which are similar to the transactions of the assessee as to the AE and the assessee is merely relying on SIA/ RBI approvals which do not take into account TP issues and relevant law as mandated under the Act to determine ALP. The learned DR relied on decision of the Tribunal in the case of SKOL Breweries Limited v. ACIT (2013) 29 taxmann.com 111(Mum-Trib.) We have observed that the Tribunal in the preceding assessment year 2006- 07 in the assessee s own case in ITA No.8371/Mum/2010 vide orders dated 14-11-2014 has observed as unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be erroneous. The payments made by the appellant through the authorized dealers (bankers) are made in accordance with the prevelant exchange control regulations. Had the company made any excess payments, it would have been objected to by the authorized dealers, who have the delegated authority under the Foreign Exchange Management Act, 1999 to administer compliance with exchange control laws in India. Viewed in the above background, the TPO's interpretation of the SIA approval was erroneous. The TPO has erred in disallowing royalty of ₹ 40,25,954. Accordingly, the Appellant's appeal is allowed and the adjustment made by the TPO is directed to be deleted. 7.1 We found that the issue regarding disallowance of royalty has been decided by the Tribunal in favour of assessee in A.Y.2003-04 2004- 05. The precise observations of the Tribunal at para 11 43 are as under :- 11. We have considered the rival submissions and perused the relevant material on record. It is observed that the impugned royalty was paid by the assessee company to its AE namely Castrol Ltd. UK at 3.5 % of the net ex- factory sale price of products manufactured and sold in India as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, delete the addition made by the AO/TPO and confirmed by the Id. CIT on account of TP adjustment in respect of royalty payment and allow ground no. 3 of the assessee's appeal. x x x x x x x x x x x x 43 The first issue raised by the Revenue in its appeal for A.Y. 2004-05 relating to deletion by the id. CIT(A) of the addition made by the AO/TPO on account of TP adjustment in respect of royalty payment is similar to the one involved in ground no. 3 of the assessee's appeal for A.Y.2003-04 which has already been decided by us in foregoing portion of this order. Following our conclusion drawn in A.Y. 2003-04 on the similar issue, we uphold the impugned order of the Id. CIT(A) for A.Y. 2004-05 deleting the addition made by the AO/TPO on account of TP adjustment in respect of royalty payment and dismiss ground no. 1 of the Revenue's appeal. 7.2 We have considered rival contentions and gone through the order of the Tribunal in assessee s own case as stated above. The facts and circumstances during the year under consideration are same. Respectfully following the decision of the Tribunal, as stated above, we do not find any infirmity in the order of CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the appeal for Assessment Year 2002-03 and Assessment Year 2004-05, direct the Assessing Officer to allow expenditure on advertisement films. Accordingly ground no. 12 is allowed. 8.1 We found that the issue is covered by the order of the Tribunal in assessee s own case for A.Y.2003-04. The precise observation of the Tribunal for A.Y.2003-04 are as under :- 41. As regards the issue raised in ground no. 2 relating to the disallowance made on account of advertisement expenses, it is observed that this issue is squarely covered in favour of the assessee by the order of the Tribunal dated 30t July 2009 (supra) for A.Y. 2001-02 wherein order of the Id. CIT(A) deleting the similar disallowance made by the AO on account of advertisement expenses treating the same as capital expenditure was upheld by the Tribunal following its order in assessee's own for A.Y. 1998-99. Respectfully following the said decision of the coordinate bench of this Tribunal in assessee's own case for A.Y. 2000-01, we uphold the impugned order of the ld. CIT(A) deleting the disallowance made by the AO on account of advertisement expenditure and dismiss ground no. 2 of the Revenue's appeal. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tis mutandis to the identical issue of claim of re-computation of the claim of depreciation on assets located at Silvasa during this year. We order accordingly. 16. The assessee has sold fixed assets of ₹ 34,71,820/- . The sold assets are scrap of building. However, the sales considerations were not been offered for taxation. The assessee was asked by the AO to explain why the depreciation of the building should not be computed by adjusting the sale consideration of ₹ 34,71,820/-. It was submitted by the assessee that in depreciation chart , the sales consideration has been adjusted against the addition to building made during the year and a net consideration of ₹ 21,58,407/- has been worked out as a capital gain. The AO observed that as per the provision of Section 50 of the Act if the entire block of an asset is sold and the sale consideration exceeds the cost of acquisition (opening w.d.v. plus additions) , the excess amount shall be taxable as short term capital gain. Accordingly, ₹ 21,58,407/- was added to the total income as short term capital gains by the AO. Before the learned CIT(A) , the assessee submitted that during the year, the assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le shall be deemed to be value of the consideration received or accruing for the purposes of section 48 of the Act. Accordingly the issue raised by the appellant in Sub Ground 8.1 and 8.2 of the appeal are not considered to be acceptable and are accordingly dismissed . Thus, the learned CIT(A) decided the substantive issue of taxability of gains u/s 50C of the Act against the assessee. With respect to the resetting of the block based on the outcome of the valuation or the claim of depreciation , it was held that the same would be consequential in nature and as such no separate directions were issued by learned CIT(A). We have adjudicated this issue in the preceding para 6 of this order w.r.t. assessee s appeal for the assessment year 2007-08 and our decision in the aforesaid para no 6 of this order shall apply mutatis mutandis to this issue in the assessee s appeal for this assessment year 2008-09. With respect to the claim of depreciation on Silvassa unit, the said issue was decided against the assessee vide this order in para 5 for assessment year 2007-08 in assessee s appeal and in para 15 of this order for assessment year 2008-09 in assessee s appeal and our aforesaid dec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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